Palladium’s record run continues on shortage concerns; aiming to take gold’s crown as the most precious metal

Palladium’s record run got it most recent boost from Fed Chair Powell’s dovish speech on Wednesday. The shift in expectations that interest rates are no longer a long way from neutral, but rather near neutral, provided a clear signal that the Fed is closer to tapping on the breaks for interest rate hikes next year. A weaker dollar is historically beneficial for precious metals, as prices become cheaper for buyers with different currencies.

Palladium, a precious metal that is also heavily used with industrials has had a very strong second half of the year. More than a third of the use of the metal is used in catalytic converters of cars with gasoline engines. While sister metal, platinum is used predominantly on diesel engines. The diesel emission scandal that has plagued European manufacturers helped drive platinum prices lower as demand shifted to gasoline engines. The correlation with palladium and platinum are near the lowest levels seen in a decade. Today, the gap between palladium and platinum reached a record level of $350, but that could narrow soon as both metals can be interchangeable for some manufactures.

Palladium has been in short supply since 2012 and expectations are for that to continue in 2019. Money managers have been jumping on the palladium trade heavily as future and options long positions climbed to 8-month highs.

The gap between gold and palladium narrowed to under $15, but that could widen if we see a disruptive end to this weekend’s G-20 meeting. The key fundamental driver for palladium is the belief that the supply lag and strong demand forecasts will continue in 2019.

Today’s price action reached the $1,200 per ounce mark reached before pulling back towards the $1,179 level. The spread between gold and palladium currently sits at $40. If palladium’s bullish trend resumes, price may target the $1,280 to $1,300 zone. It is around that area that price could form a bearish ABCD pattern. If price continues to respect the $1,300 level, key support may come from the $1,141 level.